Issuers stay aggressive in US high-yield market

By Joy Ferguson

Oct 5 (IFR) - Issuers continued to get away with
aggressively priced and structured deals in the US high-yield
market this week, despite recent widening from September's
record low yields. The average yield-to-worst on the Barclays US
high-yield corporate index has widened to 6.42% from its alltime
low of 6.15% in mid-September.

In all, US$9.266bn in US dollar volume priced from 18
issuers, with another roughly US$1bn in volume anticipated for
Friday.

Record tight yields, dividend deals and share buyback
leveraging events were all included in this week's issuance,
although there remains some restraint on certain names; and
despite the aggressive push by issuers, investors point out that
it has become very hard to find any value in the primary market.

"There is no value in any of these deals," said one
investor. "That's how we get to the end of the new issue cycle.
Now these deals are done for the benefit of the issuing company
rather than the investor, and the near alltime record low yields
aren't helping."

This week, Tenet Healthcare was able to achieve a
record low yield - 6.75% - in seven-year maturities for its
Triple C rated tranche, part of a US$800m two-part offering,
while Petco popped in on Thursday with a PIK toggle
dividend offering.

Petco Holdings, the holding company for the pet products
retailer Petco Animal Supplies, sold US$550m in five-year
non-call one Caa1/CCC+ rated senior PIK toggle notes at 8.50% at
a slight discount of 99.50, to yield 8.625%. This was tighter
than initial price talk of 8.75%-9% with a discount price of
98-99.

It was the second PIK toggle deal to tap the market in as
many weeks. CDRT, the indirect parent of Emergency
Medical Services, priced a US$450m five-year non-call one senior
PIK toggle note offering priced at 9.25% at a discount of 97 to
yield 10.028%, which was about 12.5bp-25bp wide of talk.

While that deal was heard to have struggled to get done,
Petco's offering illustrated a warming to PIK toggle dividend
offerings. The deal was heard to have garnered more than
US$2.5bn in orders from over 100 accounts.

Quebecor Media, the Canadian media conglomerate,
increased leverage by almost one turn with its bond offering
priced this week.

The company tapped the markets with an upsized US$1.35bn US
and Canadian dollar two-part offering to fund the purchase of a
portion of the minority equity interest of Quebecor held by
Caisse de depot et placement du Quebec, a Canadian pension fund.

Elsewhere in the market, a host of companies, including
Swift Energy, Alta Mesa and Vanguard Natural Resources, dropped
with small add-on deals to take advantage of the favorable
rates.

"There's so many of these tack-on deals," said the investor.
"Issuers are just so opportunistic. They don't need the money,
but the market is so hot that who is going to turn down these
deals at these levels?"

S&P's Diane Vazza, head of global fixed income research,
wrote in a report this week: "Despite lingering, and perhaps
even escalating, global risks, investors continued to flock to
the credit markets in search for better yields in September."

Moody's has found that covenant quality has declined as
issuance has surged.

The agency said September was the second worst month in 2012
for covenant quality after January. The average covenant quality
score for September issuance is the fourth weakest since January
2011, when Moody's started tracking the data.

The average Covenant Quality score issued in September was
3.88 on the Moody's scale, where 1 is strong and 5 is weakest
(with good, moderate and weak in between).

In another sign of weak covenant quality, secured bonds made
up only 11.8% of total issuance, well below the historical
average of 21.6%.

Moody's also found that in the Single B portion of the
high-yield market, 28.6% of bonds ranked in the agency's weakest
category of covenant quality, compared with the historical
average of 9.4%. This included deals from Tesoro Logistics,
Cablevision Systems and Nielsen Finance.

September's bonds show weaker covenant quality in all
high-yield rating categories, including Triple C names. The only
exception is secured bonds, which as a group provided higher
protection than the historical average, Moody's said.

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